Question

On June 15, 2021, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $330 million. The expected completion date is April 1, 2023, just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

	2021			2022			2023
Costs incurred during the year	$	90		$	70		$	45
Estimated costs to complete as of December 31		160			40			—

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2022 are $160 million instead of $40 million. Compute the amount of revenue and gross profit or loss to be recognized in 2022 assuming Sanderson recognizes revenue over time according to percentage of completion.

Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Percentages of completion Choose numerator ÷ Choose denominator = % complete to date Actual costs to date Estimated total costs 2021 $90 ÷ $250 = 36.00% 2022 $160 ÷ $200 = 80.00% 2023 $205 $205 100.00% 2021 To date Recognized in prior years Recognized in 2021 Construction revenue $0 $62 Construction expense $0 $90 Gross profit (loss) $0 $0 2022 To date Recognized in prior years Recognized in 2022 Construction revenue $0 Construction expense $0 Gross profit (loss) $0 2023 To date Recognized in prior years Recognized in 2023 Construction revenue $0 Construction expense $0 Gross profit (loss) $0

Answer 1

Part-1
2021
	To date (A)	Recognized in prior years (B)		Recognized in 2018 (A-B)
Construction revenue	$119	$0		$119
	(330X36%)
Less: Construction expense	$90	$0		$90
Gross profit (loss)	$29	$0		$29
2022
	To date (A)	Recognized in prior years (B)		Recognized in 2019 (A-B)
Construction revenue	$264	$119		$145
	(330X80%)	Prevoius Year
Less: Construction expense	$160	$90		$70
	(90+70)	Prevoius Year
Gross profit (loss)	$104	$29		$75
2023
	To date (A)	Recognized in prior years (B)		Recognized in 2020 (A-B)
Construction revenue	$330	$264		$66
	Contract Value
Less: Construction expense	$205	$160		$45
	(90+70+45)	Prevoius Year)
Gross profit (loss)	$125	$104		$21

2. Statement showing revenue and gross profit assuming this project does not qualify for revenue recognition over time. ( $ in Million)
Year	Revenue recognized		Gross Profit (Loss) recognized
2021	$0		$0
2022	$0		$0
2023	$330		$125
			(330-205)

Part-3 : Computation of Revenue and gross profit or loss to be recognized in 2022 (using the percentage of completion )
Percentages of completion
	Choose numerator	÷	Choose denominator	=	% complete to date
	Actual costs to date		Estimated total costs
2022	$160	÷	$320	=	50.00%
	(90+70)		(90+70+160)

2022
	To date	Recognized in prior years		Recognized in 2019
Construction revenue	$165	$119		$46
	(330*50%)
Less:Construction expense	$160	$90		$70
	(90+70)
Gross profit (loss)	$5	$29		($24)